How's Your Score?

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Saving your money for a down payment is a good idea, but if you don't have a strong credit score to back it up, you could end up renting for another couple of years in Wilmington, North Carolina until your score improves.

A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores are tiered from 300 to 850. In recent years, however, some people have seen their score drop dramatically after underemployment, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in determining your FICO score are:

Credit to Debt Ratio — How much do you owe versus your available credit?

Credit Inquiries — How many times has your credit history been accessed by someone other than you?

Types of Credit — Do you have a healthy mix of credit cards and loans?

Payment History — How many months do you make late payments?

In reviewing your credit history, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.

Lenders want to ensure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'll be solely because of your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You'll still get approved for a mortgage with a lower score, but the interest paid over time could be more than double the amount of an individual having a superior FICO score.

We're used to working with all levels of credit history. Call us at (910) 200-6268 and we can help you get on the right track to the home of your dreams.

There are ways to raise your score. Building your FICO score takes time. It can be difficult to make a significant stride change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:

Stay on top of payments. Delinquent payments drastically lower your credit score. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to prove that you're able to make payments to a bank.

Correct your credit report. If you discover incorrect items on your credit report, contact the bureau asking that the item be removed. If you have a common name or the same name as a family member, you'll want to pay extra attention to make sure the activity reported is correct.

Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at an even balance than to have the bulk of your debt sitting on a single card.

Apply for gas station cards or store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You must always beware of charging a high balance for too long because these types of cards normally have a steeper interest rate.

Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.

Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid a negative mark on your credit score. With the help of Masonboro Realty, Inc., the loan process is sure to go more smoothly so you, too, can achieve home ownership.